Jun 25, 2020

Written Employment Contract Updates for Physician Practices to Consider in the Wake of COVID-19


"Many physician practices have reopened and are trying to get back to “business as usual”. However, it is essential that physician practices take the time to review whether their employment agreements served them well during the pandemic, and what changes might be needed. This is especially important given that we may yet face a second wave of COVID-19.

Most physician employment contracts contain a provision requiring parties to a contract to agree to any modifications in writing. However, as a result of COVID-19, medical practices facing closures and forced service reductions found themselves in a dilemma. How could the practice afford to continue paying full compensation to physician employees with no/reduced revenue? It should be noted that although many physician practices received loans and grants as a result of the COVID-19 pandemic, most practices received inadequate support and the majority of employment decisions came before funding was even available.

Unfortunately, physician practices largely did not follow their written contracts when faced with the challenges of the pandemic. A lot of employers (including large institutions) unilaterally modified their contracts verbally, via email, or a written memo to all employees. Although most employees went along the proposed modifications, others sued their employers for breach of contract.

Of those employers that complied with their contracts, most entered into proper written amendment with their physician employees. Where an agreement could not be reached by the parties, some employers provided notice of termination without cause and paid out the contract term. In other cases, giving notice to the employee brought the parties to the table and an agreement was ultimately reached. Unfortunately, there were some employers that summarily terminated employees who refused to sign amendments and still others who fabricated grounds for termination to avoid their obligations. These unscrupulous employers will likely face litigation as a result of their actions.

From the perspective of an employer, the world has changed. In order to be prepared, physician practices should consider the following updates to their written employment contracts:

  1. Employers should give themselves the right to unilaterally modify compensation. It should be tied to certain events (such as a closure or reduction in services below a fixed amount), and all employees should be treated the same across the board. Employers should clarify when the reduction will end based on objective measures, such as a return to a certain volume of collections, patient volume or similar measurement. Offering a repayment plan to employees or a chance for employees to earn additional income is also a very welcome approach.
  2. Employers should give themselves the right to terminate a contract more quickly when certain events occur, such as a closure of the practice or perhaps a reduction of practice volume below a certain amount. I prefer that termination not be immediate and that a reasonable notice period be provided, but lengthy without cause provisions (i.e 180 days) are inadvisable.
  3. Employers may need to have the right to assign employees different hours and locations in the event of certain specific circumstances. I am always in favor of specificity in a contract as it relates to schedule/location in order to reflect the parties’ understanding; however, the pandemic made it clear that employers made need the right during a crisis to close locations and/or modify clinic hours, and thus the need for flexibility becomes key.

When COVID-19 hit, many physician practices elected to immediately terminate/furlough their physician employees without regard to what the written employment agreement required. It’s important to remember that a contract generally can only be terminated in accordance with its terms, so a physician practice that wants the ability to furlough its physicians or immediately lay them off must revise its contract to allow for such an approach. Again, I suggest the conditions when some provisions may be used be specifically described so as to make the contract as reasonable and fair as possible to both sides.

Every physician practice must think about the challenges it faced (and may still be facing) during the pandemic and what contract provisions could be helpful. Practices should revise their contracts now with practical solutions for potential disaster that could occur in the future, whether related to health, natural disaster or even war."

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Physicians Practice